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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number 000-28386
CTI BIOPHARMA CORP.
(Exact name of registrant as specified in its charter)
Delaware 91-1533912
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)
   
3101 Western Avenue  
Suite 800
Seattle
Washington 98121
(Address of principal executive offices) (Zip Code)
(206) 282-7100
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock, par value $0.001 per shareCTICThe Nasdaq Capital Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer   Accelerated filer 
Non-accelerated filer   Smaller reporting company 
Emerging growth company




If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
Class Outstanding at October 28, 2021
Common Stock, par value $0.001 per share 96,692,424



CTI BIOPHARMA CORP.
TABLE OF CONTENTS
 
   PAGE
PART I - FINANCIAL INFORMATION   
   
ITEM 1: Financial Statements (unaudited)  
   
Condensed Consolidated Balance Sheets  
   
Condensed Consolidated Statements of Operations  
   
Condensed Consolidated Statements of Comprehensive Loss  
   
Condensed Consolidated Statements of Changes in Stockholders' Equity
Condensed Consolidated Statements of Cash Flows  
   
Notes to Condensed Consolidated Financial Statements  
   
ITEM 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations  
   
ITEM 3: Quantitative and Qualitative Disclosures about Market Risk 
   
ITEM 4: Controls and Procedures 
   
PART II - OTHER INFORMATION  
   
ITEM 1: Legal Proceedings 
   
ITEM 1A: Risk Factors 
   
ITEM 2: Unregistered Sales of Equity Securities and Use of Proceeds 
   
ITEM 3: Defaults upon Senior Securities 
   
ITEM 4: Mine Safety Disclosures 
   
ITEM 5: Other Information 
   
ITEM 6: Exhibits 
   
Signatures 

3


PART I – FINANCIAL INFORMATION
Item 1. Financial Statements

CTI BIOPHARMA CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(unaudited)
 
September 30, 2021December 31, 2020
  
ASSETS  
Current assets:  
Cash and cash equivalents$95,276 $40,394 
Short-term investments 12,057 
Prepaid expenses and other current assets3,769 1,874 
Total current assets99,045 54,325 
Property and equipment, net308 719 
Other assets1,877 3,197 
Total assets$101,230 $58,241 
LIABILITIES AND STOCKHOLDERS' EQUITY  
Current liabilities:  
Accounts payable$1,784 $1,637 
Accrued expenses10,444 7,191 
Current portion of long-term debt47,240 4,455 
Other current liabilities2,874 3,755 
Total current liabilities62,342 17,038 
Long-term liabilities 1,174 
Total liabilities62,342 18,212 
Commitments and contingencies
Stockholders' equity:  
Preferred stock, $0.001 par value per share:
Authorized shares - 33,333 as of September 30, 2021 and December 31, 2020
Series O Preferred Stock, 12,575 shares issued and outstanding as of September 30, 2021 and December 31, 2020 (Aggregate liquidation preference of $25,150 as of September 30, 2021 and December 31, 2020)
  
Series X Preferred Stock, 4,092 shares and 4,429 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively (Aggregate liquidation preference of $40,920 and $44,290 as of September 30, 2021 and December 31, 2020, respectively)
  
Series X1 Preferred Stock, 600 shares and 0 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively (Aggregate liquidation preference of $15,000 as of September 30, 2021)
  
Common stock, $0.001 par value per share:
  
Authorized shares - 266,500,000 and 166,500,000 as of September 30, 2021 and December 31, 2020, respectively
  
Issued and outstanding shares - 96,679,923 and 75,896,884 as of September 30, 2021 and December 31, 2020, respectively
97 76 
Additional paid-in capital 2,427,918 2,367,958 
Accumulated other comprehensive income 2 
Accumulated deficit(2,389,127)(2,328,007)
Total stockholders' equity38,888 40,029 
Total liabilities and stockholders' equity$101,230 $58,241 
 See accompanying notes.
4


CTI BIOPHARMA CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
 
Three Months Ended September 30,Nine Months Ended September 30,
 2021202020212020
Operating costs and expenses:  
Research and development$9,717 $6,994 $28,454 $16,457 
Selling, general and administrative13,664 4,052 31,503 12,316 
Other operating expenses   4,200 
Total operating costs and expenses23,381 11,046 59,957 32,973 
Loss from operations(23,381)(11,046)(59,957)(32,973)
Non-operating income (expense):  
Interest income9 25 28 187 
Interest expense(531)(115)(644)(419)
Amortization of debt discount and issuance costs(131)(131)(391)(391)
Foreign exchange (loss) gain(7)4 (18)(79)
Loss on dissolution of majority-owned subsidiary   (3,774)
Other non-operating expense(138) (138) 
Total non-operating expense, net(798)(217)(1,163)(4,476)
Net loss$(24,179)$(11,263)$(61,120)$(37,449)
Basic and diluted net loss per common share$(0.26)$(0.15)$(0.70)$(0.54)
Shares used in calculation of basic and diluted net loss per common share 93,823 73,712 87,574 69,966 
 
See accompanying notes.

5


CTI BIOPHARMA CORP.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(unaudited)
 
Three Months Ended September 30,Nine Months Ended September 30,
 2021202020212020
Net loss $(24,179)$(11,263)$(61,120)$(37,449)
Other comprehensive income (loss):  
Change in unrealized gain (loss) on available-for-sale securities 3 (2)3 
Other comprehensive income (loss) 3 (2)3 
Comprehensive loss$(24,179)$(11,260)$(61,122)$(37,446)
 
See accompanying notes.

6


CTI BIOPHARMA CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands)
(unaudited)


     AdditionalAccumulated Other  Total
 Preferred StockCommon StockPaid-inComprehensiveAccumulatedNoncontrollingStockholders'
 SharesAmountSharesAmountCapitalIncome (loss)DeficitInterestEquity
Balance at January 1, 202117 $ 75,897 $76 $2,367,958 $2 $(2,328,007)$ $40,029 
Issuance of common stock, net of issuance costs— — 858 1 2,961 — — — 2,962 
Equity-based compensation— — — — 932 — — — 932 
Cancellation of restricted stock— — (4)— — — — — — 
Net loss— — — — — — (17,266)— (17,266)
Other comprehensive loss — — — — — (3)— — (3)
Balance at March 31, 202117 $ 76,751 $77 $2,371,851 $(1)$(2,345,273)$ $26,654 
Issuance of common stock and Series X1 preferred stock, net of issuance costs
1 — 16,400 16 53,537 — — — 53,553 
Equity-based compensation— — — — 988 — — — 988 
Exercise of stock options and shares issued under employee stock purchase plan— — 159 — 185 — — — 185 
Net loss— — — — — — (19,675)— (19,675)
Other comprehensive income— — — — — 1 — — 1 
Balance at June 30, 202118 $ 93,310 $93 $2,426,561 $ $(2,364,948)$ $61,706 
Conversion of Series X preferred stock to common stock(1)— 3,370 4 (4)— — —  
Equity-based compensation— — — — 1,361 — — — 1,361 
Net loss— — — — — — (24,179)— (24,179)
Balance at September 30, 202117 $ 96,680 $97 $2,427,918 $ $(2,389,127)$ $38,888 


7


     AdditionalAccumulated Other  Total
 Preferred StockCommon StockPaid-inComprehensiveAccumulatedNoncontrollingStockholders'
 SharesAmountSharesAmountCapitalIncomeDeficitInterestEquity
Balance at January 1, 202013 $ 57,980 $58 $2,299,186 $ $(2,275,556)$(5,758)$17,930 
Issuance of common stock, net of issuance costs— — 15,699 16 15,454 — — — 15,470 
Conversion of Series X preferred stock to common stock — — 3 — 3 — — — 3 
Equity-based compensation— — — — 1,167 — — — 1,167 
Net loss— — — — — — (12,186)— (12,186)
Balance at March 31, 202013 $ 73,682 $74 $2,315,810 $ $(2,287,742)$(5,758)$22,384 
Reclassification of Series X preferred stock from mezzanine equity4 — — — 43,637 — — — 43,637 
Equity-based compensation— — — — 1,002 — — — 1,002 
Dissolution of majority-owned subsidiary— — — — (1,949)— — 5,758 3,809 
Exercise of stock options and shares issued under employee stock purchase plan— — 35 — 31 — — — 31 
Net loss— — — — — — (14,000)— (14,000)
Balance at June 30, 202017 $ 73,717 $74 $2,358,531 $ $(2,301,742)$ $56,863 
Equity-based compensation— — — — 1,216 — — — 1,216 
Net loss— — — — — — (11,263)— (11,263)
Other comprehensive income— — — — — 3 — — 3 
Balance at September 30, 202017 $ 73,717 $74 $2,359,747 $3 $(2,313,005)$ $46,819 

See accompanying notes.

8


CTI BIOPHARMA CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
 
 Nine Months Ended September 30,
 20212020
Operating activities  
Net loss $(61,120)$(37,449)
Adjustments to reconcile net loss to net cash used in operating activities:  
Loss on dissolution of majority-owned subsidiary 3,774 
Equity-based compensation 3,281 3,385 
Depreciation and amortization395 399 
Provision for Italian VAT receivables and deposit 4,200 
Other(52)(122)
Changes in operating assets and liabilities:  
Prepaid expenses and other assets856 2,267 
Accounts payable, accrued expenses and other liabilities1,769 (7,839)
Net cash used in operating activities(54,871)(31,385)
Investing activities  
Purchases of short-term investments (12,100)
Proceeds from maturities of short-term investments 12,000 2,500 
Net cash provided by (used in) investing activities12,000 (9,600)
Financing activities  
Gross proceeds from public offering of common stock and Series X1 preferred stock
56,000  
Cash paid for offering costs - public offering of common stock and Series X1 preferred stock
(2,447) 
Gross proceeds from at-the-market equity offering3,064  
Cash paid for offering costs - at-the-market equity offering(411) 
Gross proceeds from rights offering 59,991 
Cash paid for offering costs - rights offering (883)
Gross proceeds from DRI Credit Agreement50,000  
Cash paid for issuance costs - DRI Credit Agreement(1,806) 
Cash paid for issuance costs - DRI Royalty Financing Agreement (521) 
Repayment of Silicon Valley Bank debt(6,329)(4,000)
Proceeds from stock option exercises144 30 
Proceeds from sales of common stock under employee stock purchase plan 59 4 
Net cash provided by financing activities97,753 55,142 
Net increase in cash and cash equivalents 54,882 14,157 
Cash and cash equivalents at beginning of period40,394 31,144 
Cash and cash equivalents at end of period$95,276 $45,301 
Supplemental disclosure of cash flow information  
Cash paid during the period for interest$158 $448 
Supplemental disclosure of noncash activities  
Conversion of preferred stock to common stock $3,370 $ 
 
See accompanying notes.
9


CTI BIOPHARMA CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1. Description of Business and Summary of Significant Accounting Policies

CTI BioPharma Corp., also referred to collectively in this Quarterly Report on Form 10-Q as “we,” “us,” “our,” the “Company” and “CTI,” is a biopharmaceutical company focused on the acquisition, development and commercialization of novel targeted therapies for blood-related cancers that offer a unique benefit to patients and their healthcare providers, where there is a significant unmet medical need. Our goal is to build a profitable company by generating income from products we develop and commercialize, either alone or with partners. We concentrate our efforts on treatments that target blood-related cancers where there is a significant unmet medical need. In particular, we are focused on evaluating pacritinib, our sole product candidate currently in active development, for the treatment of patients with myelofibrosis with a baseline platelet count of <50 x 109/L. Pacritinib is also being investigated for the prevention of acute graft versus host disease, or aGvHD, in an ongoing investigator-sponsored Phase 1/2 study.

We operate in a highly regulated and competitive environment. The manufacturing and marketing of pharmaceutical products requires approval from, and is subject to, ongoing oversight by the Food and Drug Administration, or FDA, in the United States, the European Medicines Agency, or the EMA, in the European Union, or the EU, and comparable agencies in other countries. Obtaining approval for a new therapeutic product is never certain, may take many years and may involve the expenditure of substantial resources.

Basis of Presentation

The accompanying unaudited financial information as of and for the three and nine months ended September 30, 2021 and 2020 has been prepared in accordance with accounting principles generally accepted in the U.S., or U.S. GAAP, for interim financial information and with the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, such financial information includes all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of our financial position at such dates and the operating results and cash flows for such periods. Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the entire year or for any other subsequent interim period.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to the rules of the U.S. Securities and Exchange Commission, or the SEC. These unaudited condensed consolidated financial statements and related notes should be read in conjunction with our audited financial statements for the year ended December 31, 2020 included in our Annual Report on Form 10-K filed with the SEC on March 17, 2021.

The condensed consolidated balance sheet at December 31, 2020 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of CTI and its majority-owned subsidiary, Aequus Biopharma, Inc., or Aequus, until its dissolution in June 2020. We had an approximately 60% interest in Aequus, and the remaining interest in Aequus not held by CTI was reported as noncontrolling interest in the condensed consolidated financial statements until its dissolution. All intercompany transactions and balances were eliminated in consolidation through the June 2020 Aequus dissolution. The accompanying condensed consolidated financial statements do not include the accounts of subsidiaries since July 2020.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of loss contingencies in the condensed consolidated financial statements and accompanying notes. Estimates are used for, but not limited to, clinical accruals, income taxes, useful lives of equipment, commitments and contingencies, equity-based compensation forfeiture rates, collectability of receivables and impairment of investments. Given the global economic climate and additional or unforeseen effects from the ongoing COVID-19 pandemic, these estimates are becoming more challenging, and actual results could differ materially from those estimates.

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Liquidity

The accompanying condensed consolidated financial statements have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business within one year after the date the condensed consolidated financial statements are issued. Our management evaluates whether there are conditions or events, considered in aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued.

Over the next year and in the normal course of business, we will need to continue to conduct research, development, testing and regulatory compliance activities and prepare for potential commercialization with respect to pacritinib, and in the course of such activities, we will incur selling, general and administrative expenses. Additional business activities will include procuring manufacturing and drug supply services, the costs of which, together with our projected selling, general and administrative expenses, are expected to result in operating losses for the foreseeable future.We have incurred a net operating loss every year since our formation. As of September 30, 2021, we had an accumulated deficit of $2.4 billion, and we expect to continue to incur net losses for the foreseeable future. Our available cash and cash equivalents were $95.3 million as of September 30, 2021. We expect that our present financial resources will be sufficient to meet our obligations as they come due and to fund our operations into the second quarter of 2022. Based on our evaluation completed pursuant to Accounting Standards Update No. 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern, these factors raise substantial doubt about our ability to continue as a going concern.

We will require additional capital in order to pursue our strategic objectives. We expect to satisfy our capital needs through existing capital balances and some combination of public or private equity financings, partnerships, collaborations, joint ventures, debt financings or restructurings, bank borrowings or other sources of financing. However, we have a limited number of authorized shares of common stock available for issuance and additional funding may not be available on favorable terms or at all. If additional funds are raised by issuing equity securities, substantial dilution to existing stockholders may result. If we fail to obtain additional capital when needed, our ability to operate as a going concern will be harmed, and we may be required to delay, scale back or eliminate some or all of our research and development programs and commercialization efforts and/or reduce our selling, general and administrative expenses, be unable to attract and retain highly-qualified personnel, be unable to obtain and maintain contracts necessary to continue our operations and at affordable rates with competitive terms, refrain from making our contractually required payments when due (including debt payments) and/or be forced to cease operations, liquidate our assets and possibly seek bankruptcy protection.

Our future capital requirements will depend on many factors, including: the cost of manufacturing clinical supplies of our product candidates or of establishing commercial supplies of any products that we may develop in the future; developments in and expenses associated with our research and development activities; our clinical development plans and any changes that we may initiate or that may be requested by the FDA or other regulators as we seek product approval; acquisitions or collaborations with respect to compounds or other assets; competitive market developments; disruptions or other delays to our business and clinical trials resulting from the ongoing worldwide COVID-19 pandemic; and other unplanned business developments.

In addition, our ability to comply with covenants under our Credit Agreement with Drug Royalty III LP 2 may be affected by events beyond our control, and we may not be able to meet those covenants. A breach of any of these covenants, including a material adverse change in our business, operations or condition (financial or otherwise), could result in an event of default under the Credit Agreement, which could cause all of the outstanding indebtedness under the facility to become immediately due and payable. The accompanying condensed consolidated financial statements do not include adjustments, if any, that may result from the outcome of this uncertainty.

Cash, Cash Equivalents and Short-term Investments

As of September 30, 2021, our cash and cash equivalents consisted of cash and money market funds. As of December 31, 2020, our cash, cash equivalents and short-term investments consisted of cash, money market funds and corporate debt securities. Cash equivalents and short-term investments are recorded at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are based on a three-tier hierarchy that prioritizes the inputs used to measure fair value. There are three levels of inputs used to measure fair value, with Level 1 having the highest priority and Level 3 having the lowest:

Level 1—Valuations based on unadjusted quoted prices for identical assets and liabilities in active markets.
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Level 2—Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
Level 3—Valuations based on unobservable inputs that are supported by little or no market activity, reflecting our own assumptions. These valuations require significant judgment or estimation.

We measure the fair value of money market funds based on the closing price reported by the fund sponsor from an actively traded exchange. We value all other securities using broker quotes that utilize observable market inputs. We did not hold cash, cash equivalents and short-term investments categorized as Level 3 assets as of September 30, 2021 and December 31, 2020. The following table summarizes, by major security type, our cash, cash equivalents and short-term investments that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy (in thousands):

September 30, 2021December 31, 2020
Cost or Amortized CostGross Unrealized Gains / LossesTotal Estimated Fair ValueTotal Estimated
Fair Value
Cash
$354 $— $354 $385 
Level 1 securities:
Money market funds
94,922 — 94,922 40,009 
Level 2 securities:
Corporate debt securities
   12,057 
Total cash, cash equivalents and short-term investments$95,276 $ $95,276 $52,451 

Equity-based compensation

Equity-based compensation expense is recognized over the requisite service periods on awards ultimately expected to vest. We apply estimated forfeiture rates at the time of grant and make revisions, if necessary, in subsequent periods if actual forfeitures differ from those estimates. For performance-based stock options and restricted stock, we record compensation expense over the estimated service period once the achievement of the performance-based milestone is considered probable. We recorded equity-based compensation expense of $1.4 million and $1.2 million for the three months ended September 30, 2021 and 2020, respectively, and $3.3 million and $3.4 million for the nine months ended September 30, 2021 and 2020, respectively. All equity-based compensation expense was related to option awards, and substantially all of the expense was included in Selling, general and administrative expenses for the periods presented.

Net Loss per Share

Basic net loss per common share is calculated based on net loss divided by the weighted average number of shares outstanding for the period. The calculation of diluted net loss per common share excludes the potential conversion of all dilutive convertible securities, such as convertible preferred stock, using the if-converted method, and the potential exercise or vesting of other dilutive securities, such as stock awards and warrants, using the treasury stock method, as their inclusion would have an anti-dilutive effect.

Common shares underlying stock awards, warrants and convertible preferred stock aggregating 77.6 million shares and 68.8 million shares for the three months ended September 30, 2021 and 2020, respectively, and 74.3 million shares and 53.0 million shares for the nine months ended September 30, 2021 and 2020, respectively, were excluded from the calculation of diluted net loss per share because they were anti-dilutive.

Recently Adopted Accounting Standards

In August 2020, the Financial Accounting Standards Board, or FASB, issued new accounting guidance for convertible instruments which eliminates two of the three models in ASC 470-20 that require separate accounting for embedded conversion features. Separate accounting is still required in certain cases. For smaller reporting companies, the guidance is effective for fiscal years beginning after December 15, 2023, including interim periods therein. Early adoption is permitted in fiscal years beginning after December 15, 2020. We early adopted this guidance as of January 1, 2021. In April 2021, as discussed in “Note 5. Equity Transactions,” we completed the public offering of our common stock and our Series X1 Preferred Stock. No beneficial conversion feature was recognized on Series X1 Preferred Stock upon issuance as a result of adopting this guidance.
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Recently Issued Accounting Standards

In March 2020, the FASB issued new accounting guidance to provide temporary optional expedients to ease the potential burden in accounting for reference rate reform. The guidance includes an optional expedient that simplifies accounting for contract modifications to loans receivable and debt, by prospectively adjusting the effective interest rate. The accounting guidance is effective as of March 12, 2020 through December 31, 2022. As discussed in “Note 4. Debt Financing Arrangements,” in August 2021, we entered into the Credit Agreement, which has an interest rate that is referenced to the London Interbank Offered Rate, or LIBOR. We plan to elect the optional expedient for our credit facility by prospectively adjusting the effective interest rate if the cessation of the LIBOR occurs. We do not expect the adoption of this guidance to have a material impact on our condensed consolidated financial statements.

In October 2020, the FASB issued new accounting guidance to provide incremental improvements to its Accounting Standards Codification on various topics. Such improvements include conforming amendments, clarifications to guidance, simplifications to wording or structure of guidance and other minor changes. For smaller reporting companies, the guidance is effective for fiscal years beginning after December 15, 2021, and interim periods within annual periods beginning after December 15, 2022. Early adoption is permitted for any annual or interim period for which financial statements have not been issued. The codification amendments do not change GAAP, therefore we do not expect the adoption of this accounting guidance to have a material impact on our condensed consolidated financial statements.

Although there were several other new accounting pronouncements issued or proposed by the FASB, we do not believe any of these have had or will have a material impact on our condensed consolidated financial statements.

Reclassification

Certain prior year items have been reclassified to conform to current year presentation.

2. Other Assets

Other assets consisted of the following (in thousands):
 September 30, 2021December 31, 2020
Right-of-use assets$1,107 $2,149 
Clinical trial deposits770 770 
Other 278 
Total other assets $1,877 $3,197 

3. Other Current Liabilities

Other current liabilities consisted of the following (in thousands):
 September 30, 2021December 31, 2020
Operating lease liabilities, current portion$1,379 $2,194 
End-of-facility lender fee (1)1,000 1,440 
Other current obligations495 121 
Total other current liabilities$2,874 $3,755 

(1) The end-of-facility lender fee as of September 30, 2021 represents an amount payable to Drug Royalty III LP 2, or DRI, upon repayment of our secured term loan under the Credit Agreement with DRI. The end-of-facility lender fee as of December 31, 2020 represents an amount payable to Silicon Valley Bank upon repayment of our secured term loan, which was repaid in August 2021. See “Note 4. Debt Financing Arrangements” for additional information.

4. Debt Financing Arrangements

Silicon Valley Bank

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In August 2021, in connection with the Credit Agreement we entered into with Drug Royalty III LP 2 as discussed below, we repaid the then-outstanding principal balance of $1.3 million under our loan agreement with Silicon Valley Bank in full, along with the end-of-facility lender fee of $1.4 million and the prepayment premium of $40,000. Accordingly, with respect to the loan agreement with Silicon Valley Bank, among other things, (1) all obligations have been paid, satisfied, released and discharged in full, (2) all unfunded commitments to make credit extensions or financial accommodations to us or any other person under the loan agreement have been automatically and irrevocably terminated, and (3) all related documents have been automatically and irrevocably terminated (other than with respect to customary provisions and agreements that are expressly specified to survive the termination). Upon full repayment of the principal in August 2021, we recorded a loss on debt extinguishment of $0.1 million in Other non-operating expense for the three and nine months ended September 30, 2021.

Drug Royalty III LP 2

Credit Agreement

In August 2021, we entered into a Credit Agreement with Drug Royalty III LP 2, or DRI, as lender and as administrative agent for the lenders, and received a term loan in the principal amount of $50.0 million under the Credit Agreement, or the Term Loan, with a maturity date of August 25, 2026. The Credit Agreement provides for quarterly interest-only payments until the maturity date, with the unpaid principal amount of the Term Loan due and payable on the maturity date. The Term Loan bears interest at a rate equal to the greater of (i) 1.75% per annum and (ii) the three-month LIBOR rate, plus 8.25% (or, upon the occurrence of and during the continuance of any event of default, plus 10.25% per annum). Our obligations under the Credit Agreement are secured by a first priority security interest in substantially all of our assets, subject to certain exceptions.

We are required to make mandatory prepayments of the Term Loan with the proceeds of certain asset sales, certain pacritinib out-licensing or royalty monetization transactions (excluding the Royalty Sale contemplated under the Royalty Purchase Agreement discussed below), extraordinary receipts, debt issuances, or upon a change of control of the Company and specified other events, subject to certain exceptions. We may make voluntary prepayments in whole or in part. Prepayments prior to the fourth anniversary of the closing date are subject to a prepayment premium, which declines over time following the second anniversary of the closing date. Upon the prepayment or repayment, including at maturity, of all or any portion of the Term Loan, we are obligated to pay an exit fee in an amount equal to 2.00% of the principal amount of the Term Loan prepaid or repaid, which is recorded in Other current liabilities. See “Note 3. Other Current Liabilities” for additional information. In addition, the Term Loan was subject to a 1.00% commitment fee due and payable on the closing date.

The Credit Agreement also contains representations and warranties and affirmative and negative covenants customary for financings of this nature, as well as customary events of default. Certain of the customary negative covenants limit our ability to, among other things, grant liens, make investments, incur additional indebtedness, dispose of assets, license certain property, distribute dividends, make certain restricted payments, change the nature of our business, engage in transactions with affiliates and insiders, prepay other indebtedness, or engage in sale and leaseback transactions, subject to certain exceptions. The Credit Agreement also contains a minimum liquidity covenant requiring us to maintain at least $10.0 million of unrestricted cash and cash equivalents, subject to certain exceptions. A failure to comply with the covenants in the Credit Agreement could permit the Lenders under the Credit Agreement to declare the outstanding principal as well as accrued interest and fees to be immediately due and payable.

As of September 30, 2021, we had an outstanding Term Loan principal balance of $50.0 million under the Credit Agreement. In connection with the Credit Agreement, we recorded debt discount and debt issuance costs of $1.5 million and $1.3 million, respectively, of which $1.5 million and $1.3 million were unamortized as of September 30, 2021, respectively. The Credit Agreement contains certain settlement provisions which, if deemed probable, would result in the recognition of an embedded feature. However, we do not believe such provisions are probable at this time.

All amounts due under the Credit Agreement have been recorded in current liabilities on the condensed consolidated balance sheet as of September 30, 2021 due to the considerations discussed in “Note 1. Description of Business and Summary of Significant Accounting Policies - Liquidity” and the assessment that the events of default clause, which includes a material adverse effect provision under the Credit Agreement, is not within our control. We have not been notified of an event of default by DRI as of the date of the filing of this Quarterly Report on Form 10-Q.

Royalty Financing Agreement

In connection with the Credit Agreement discussed above, we entered into a Purchase and Sale Agreement with DRI, or the Royalty Financing Agreement, pursuant to which we sold to DRI the right to receive certain royalty payments from us for a purchase price of up to $85.0 million in cash. Under the Royalty Financing Agreement, DRI is entitled to receive tiered, sales
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based royalties on net product sales of pacritinib in the United States in an amount equal to: (i) 9.60% of annual net sales of pacritinib in the United States for annual net sales up to $125 million, (ii) 4.50% of annual net sales of pacritinib in the United States for annual net sales between $125 million and $175 million, and (iii) 0.50% of annual net sales of pacritinib in the United States for annual net sales between $175 million and $400 million. No royalty payments are payable on annual net sales of pacritinib in the United States over $400 million.

DRI will fund the upfront purchase price of $60.0 million upon approval of pacritinib by the FDA in the United States (subject to certain closing conditions) and will be required to provide up to $25.0 million of additional funding if certain minimum pacritinib sales thresholds are met in 2023, or sooner. If pacritinib is not approved by the FDA by May 2, 2022, then the Royalty Financing Agreement shall automatically terminate.

We will be required to make payments of amounts owed to DRI each calendar quarter from and after the first commercial sale of the applicable product in the United States. The transactions contemplated by the Royalty Financing Agreement are referred to herein as the Royalty Sale.

Under the Royalty Financing Agreement, we have agreed to specified affirmative and negative covenants, including without limitation covenants regarding periodic reporting of information by us to DRI, obligations to use commercially reasonable efforts to commercialize pacritinib in the United States and restrictions on the ability of the Company or any of its subsidiaries to incur certain indebtedness, which restrictions are eliminated after the earliest of: (i) the date on which the trailing twelve months’ of pacritinib sales equals at least $200 million, or (b) the date on which the Company’s market capitalization (determined on an as-converted basis) is at least $1.0 billion for 20 consecutive trading days or (c) DRI receiving royalty payments in an amount equal to 100% of their purchase price. The Royalty Financing Agreement also contains representations and warranties, other covenants, indemnification obligations, settlement clauses and other provisions customary for transactions of this nature.

We have evaluated the terms of the Royalty Financing Agreement and concluded that the features of the funding from DRI are similar to those of a debt instrument. Accordingly, we will account for the transaction as debt and the funding from DRI will be recorded as Royalty Financing Obligation on our condensed consolidated balance sheet. The Royalty Financing Obligation will be amortized over the expected repayment term using an effective interest rate method. The effective interest rate will be calculated based on the rate that would enable the debt to be repaid in full over the anticipated life of the arrangement. The interest rate may vary during the term of the agreement depending on a number of factors, including the amount and timing of forecasted net revenues which affects the repayment timing and ultimate amount of repayment. We will evaluate the effective interest rate quarterly based on our current revenue forecasts utilizing the prospective method.


5. Equity Transactions

At-The-Market Equity Offering

In January 2021, we entered into an Open Market Sale Agreement℠ with Jefferies LLC, or the Sale Agreement, to sell shares of our common stock having aggregate sales proceeds of up to $50.0 million, from time to time, through an “at the market” equity offering program under which Jefferies will act as sales agent.

Under the Sale Agreement, we will set the parameters for the sale of shares, including the number of shares to be issued, the time period during which sales are requested to be made, limitation on the number of shares that may be sold in any one trading day and any minimum price below which sales may not be made. Subject to the terms and conditions of the Sale Agreement, Jefferies may sell the shares by methods deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended, including sales made directly on The Nasdaq Capital Market or on any other existing trading market for the common stock. Jefferies will use commercially reasonable efforts in conducting such sales activities consistent with its normal trading and sales practices, applicable state and federal laws, rules and regulations and the rules of The Nasdaq Stock Market LLC.

We and Jefferies may each terminate the Sale Agreement at any time upon ten trading days’ prior notice. We may also sell shares to Jefferies acting as principal for Jefferies’ own account. The compensation to Jefferies for sales of our common stock will be an amount equal to 3% of the gross proceeds of any shares of our common stock sold under the Sale Agreement. We have no obligation to sell any shares under the Sale Agreement, and may at any time suspend solicitation and offers under the Sale Agreement.

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For the nine months ended September 30, 2021, we sold 0.9 million shares of our common stock for net proceeds of approximately $2.7 million under the Sale Agreement.

Series X Preferred Stock

In March 2020, we completed a rights offering whereby we issued 15.7 million shares of our common stock and 4,429 shares of our Series X Preferred Stock. See Part II, Item 8, “Notes to Consolidated Financial Statements, Note 8. Equity Transactions” of our Annual Report on Form 10-K for the year ended December 31, 2020 for additional information.
During the three and nine months ended September 30, 2021, 337 shares of our Series X Preferred Stock were converted into 3.4 million shares of our common stock. There were 4,092 shares of our Series X Preferred Stock outstanding as of September 30, 2021.

Public Offering of Common Stock and Series X1 Preferred Stock

In April 2021, we completed the public offering of our common stock and our Series X1 Preferred Stock, or the Offering, whereby we issued 14,260,800 shares of our common stock, par value $0.001 per share, at a public offering price of $2.50 per share, and 600 shares of our Series X1 Preferred Stock, par value $0.001 per share, at a public offering price of $25,000 per share. In addition, we granted the underwriters a 30-day option to purchase up to additional 2,139,120 shares of our common stock on the same terms and conditions, which was exercised in full in April 2021. The net proceeds to us from the Offering, after deducting underwriting discounts and offering expenses, were approximately $53.6 million. No beneficial conversion feature was recognized upon issuance of our Series X1 Preferred Stock due to the adoption of ASU 2020-06 in the first quarter of 2021.

At the time of issuance of our Series X1 Preferred Stock, the carrying amount of our Series X1 Preferred Stock was initially classified as mezzanine equity in the condensed consolidated balance sheet since we did not have an adequate number of shares of authorized common stock to satisfy the number of required shares under the conversion option of our Series X1 Preferred Stock. In June 2021, our stockholders approved an increase in the number of shares of authorized common stock, and as such, we can now control settlement of the conversion option's exercise by delivering shares. Accordingly, the carrying amount of our Series X1 Preferred Stock was reclassified to permanent equity as of June 2021.

BVF Partners L.P., or BVF, an existing stockholder of the Company, was one of the investors in the Offering. In connection with the Offering, BVF purchased 2.0 million shares of our common stock and 600 shares of our Series X1 Preferred Stock. As of September 30, 2021, BVF beneficially owned approximately 9.2% of our outstanding common stock. Matthew D. Perry, a member of our Board, is the President of BVF and portfolio manager for the underlying funds managed by the firm. No shares of our Series X1 Preferred Stock were converted into our common stock during the three and nine months ended September 30, 2021. There were 600 shares of our Series X1 Preferred Stock outstanding as of September 30, 2021.

Each share of Series X1 Preferred Stock is convertible into 10,000 shares of our common stock at a conversion price of $2.50 per share of common stock, at the option of the holder at any time, subject to certain limitations, including that a holder of Series X1 Preferred Stock is prohibited from converting Series X1 Preferred Stock into common stock if, as a result of such conversion, such holder, together with its affiliates, would own more than 9.99% of the total number of shares of our common stock issued and outstanding immediately after giving effect to such conversion.

Shares of Series X1 Preferred Stock generally have no voting rights, except as otherwise expressly provided in the Certificate of Designation of Preferences, Rights and Limitations of Series X1 Convertible Preferred Stock, or Certificate of Designation, or as otherwise required by law. However, as long as any shares of Series X1 Preferred Stock are outstanding, we shall not, without the affirmative vote of the holders of a majority of the then outstanding shares of Series X1 Preferred Stock, (i) alter or change adversely the powers, preferences or rights given to the Series X1 Preferred Stock or alter or amend this Certificate of Designation, amend or repeal any provision of, or add any provision to, the Certificate of Incorporation or bylaws of the Company, or file any articles of amendment, certificate of designations, preferences, limitations and relative rights of any series of preferred stock, if such action would adversely alter or change the preferences, rights, privileges or powers of, or restrictions provided for the benefit of the Series X1 Preferred Stock, regardless of whether any of the foregoing actions shall be by means of amendment to the Certificate of Incorporation or by merger, consolidation or otherwise, (ii) issue further shares of Series X1 Preferred Stock or increase or decrease (other than by conversion) the number of authorized shares of Series X1 Preferred Stock, or (iii) enter into any agreement with respect to any of the foregoing.
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In the event of our liquidation, dissolution or winding up, holders of Series X1 Preferred Stock will participate pari passu with any distribution of proceeds to holders of our common stock. Holders of Series X1 Preferred Stock are entitled to receive dividends on shares of Series X1 Preferred Stock equal (on an as-converted to common stock basis, without regard to the Beneficial Ownership Limitation (as defined in the Certificate of Designation)) to and in the same form as dividends actually paid on shares of common stock, plus an additional amount equal to any dividends declared but unpaid on such shares, before any payments shall be made or any assets distributed to holders of any class of Junior Securities (as defined in the Certificate of Designation).

6. Contingencies

In April 2009, December 2009 and June 2010, the Italian Tax Authority, or the ITA, issued notices of assessment to CTI - Sede Secondaria, or CTI (Europe), based on the ITA’s audit of CTI (Europe)’s value added tax, or VAT, returns for the years 2003, 2005, 2006 and 2007. The ITA audits concluded that CTI (Europe) did not collect and remit VAT on certain invoices issued to non-Italian clients for services performed by CTI (Europe). The assessments, including interest and penalties, for the years 2003, 2006 and 2007 are €0.7 million, €2.8 million and €0.9 million, respectively. We believe that the services invoiced were non-VAT taxable consultancy services and that the VAT returns are correct as originally filed. We have appealed all of the assessments and are defending ourselves against the assessments both on procedural grounds and on the merits of the cases, although we can make no assurances regarding the ultimate outcome of these cases. There have been no changes to the status of the legal proceedings surrounding each respective VAT year return at issue since the filing of our Annual Report on Form 10-K for the year ended December 31, 2020. See Part II, Item 8, “Notes to Consolidated Financial Statements, Note 14. Commitments and Contingencies” of our Annual Report on Form 10-K for the year ended December 31, 2020 for additional information.

If the final decision of the Italian Supreme Court is unfavorable to us, or if, in the interim, the ITA were to make a demand for payment and we were to be unsuccessful in suspending collection efforts, we may be requested to pay the ITA an amount up to €4.4 million, or approximately $5.1 million converted using the currency exchange rate as of September 30, 2021, including interest and penalties for the period lapsed between the date in which the assessments were issued and the date of effective payment. We have not recorded this contingent liability in the financial statements as we do not believe the potential payment to the ITA is probable at this time.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q contains “forward-looking statements” that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements other than statements of historical fact in this Quarterly Report are forward-looking statements. In some cases, forward-looking statements can be identified by terms such as “anticipates,” “assume,” “believes,” “continue,” “could,” “estimates,” “expects,” “forecast,” “goal,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “target” or “will” or the negative thereof, variations thereof and similar expressions. These forward-looking statements include, but are not limited to, statements about:

our expectations regarding sufficiency of cash resources, cash expenditures, sources of cash flows and other projections, research and development expenses, selling, general and administrative expenses and additional losses;
our ability to obtain funding for our operations;
the potential commercialization of pacritinib as a treatment for myelofibrosis patients with severe thrombocytopenia;
our ability to develop, commercialize and obtain regulatory approval of pacritinib for other development programs we may pursue in the future;
the design of our clinical trials and their anticipated enrollment;
the safety, effectiveness and potential benefits and indications of pacritinib and any other product candidates we may develop in the future;
the timing of and results from clinical trials and pre-clinical development activities, including those related to pacritinib and any other product candidates we may develop in the future;
our ability to advance product candidates, including pacritinib and any other product candidates we may develop in the future, into, and the successful completion of, clinical trials;
our ability to achieve profitability, including our ability to effectively implement cost reduction strategies and realize anticipated cost savings from those efforts;
our expectations regarding federal, state and foreign regulatory requirements;
the rate and degree of market acceptance and clinical utility of pacritinib or any other product candidates we may develop in the future;
our and our collaborators’ ability to obtain and maintain regulatory approvals for pacritinib or any other product candidates we may develop in the future, and the timing of such approvals;
our ability to maintain and establish collaborations;
our expectations regarding market risk, including interest rate changes and foreign currency fluctuations;
our ability to protect our intellectual property and operate our business without infringing upon the intellectual property rights of others;
the impact of government laws and regulations;
our ability to negotiate, integrate, and implement collaborations, acquisitions and other strategic transactions;
our ability to engage and retain the employees required to advance our development activities and grow our business;
developments relating to our competitors and our industry, including the success of competing therapies that are or become available;
our expectations regarding business disruptions and related risks resulting from the ongoing worldwide coronavirus pandemic known as COVID-19; and
other risks and uncertainties, including those listed under the heading Risk Factors and in other filings we periodically make with the U.S. Securities and Exchange Commission, or the SEC.

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Such statements are based on management’s current expectations and are subject to risks and uncertainties, which may cause actual results to differ materially from those set forth in the forward-looking statements. There can be no assurance that such expectations or any of the forward-looking statements will prove to be correct, and actual results could differ materially from those projected or assumed in the forward-looking statements. We urge you to carefully review the disclosures we make concerning risks and other factors that may affect our business and operating results and cause them to differ materially from our current expectations, including those discussed below and elsewhere in this Quarterly Report on Form 10-Q and those made under Part I, Item 1, “Business,” Part I, Item 1A, “Risk Factors,” Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and any risk factors contained in our subsequent Quarterly Reports on Form 10-Q that we file with the SEC.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

We do not intend to update any of the forward-looking statements after the date of this Quarterly Report on Form 10-Q to conform these statements to actual results or changes in our expectations. Readers are cautioned not to place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report on Form 10-Q.

In this Quarterly Report on Form 10-Q, all references to “we,” “us,” “our,” the “Company” and “CTI” mean CTI BioPharma Corp. and our subsidiaries, except where it is otherwise made clear.

OVERVIEW

We are a biopharmaceutical company focused on the acquisition, development and commercialization of novel targeted therapies for blood-related cancers that offer a unique benefit to patients and their healthcare providers, where there is a significant unmet medical need. Our goal is to build a profitable company by generating income from products we develop and commercialize, either alone or with partners. We concentrate our efforts on treatments that target blood-related cancers where there is a significant unmet medical need. In particular, we are focused on evaluating pacritinib, our sole product candidate currently in active development, for the treatment of patients with myelofibrosis with a baseline platelet count of <50 x 109/L. Pacritinib is also being investigated for the prevention of acute graft versus host disease, or aGvHD, in an ongoing investigator-sponsored Phase 1/2 study.

Pacritinib is an oral kinase inhibitor with specificity for JAK2, IRAK1 and CSF1R. The JAK family of enzymes is a central component in signal transduction pathways, which are critical to normal blood cell growth and development, as well as inflammatory cytokine expression and immune responses. Mutations in these kinases have been shown to be directly related to the development of a variety of blood-related cancers, including myeloproliferative neoplasms, leukemia and lymphoma. In addition to myelofibrosis, the kinase profile of pacritinib suggests its potential therapeutic utility in conditions such as acute myeloid leukemia, or AML, myelodysplastic syndrome, or MDS, chronic myelomonocytic leukemia, or CMML, prevention of aGvHD, and chronic lymphocytic leukemia, or CLL, due to its inhibition of JAK2, IRAK1 and CSF1R. We believe pacritinib has the potential to be delivered as a single agent or in combination therapy regimens.

In September 2020, we reached an agreement with the U.S. Food and Drug Administration, or FDA, to submit a New Drug Application, or NDA, for the potential accelerated approval of pacritinib as a treatment for myelofibrosis patients with severe thrombocytopenia, and in March 2021 we completed our rolling NDA submission. The NDA was based on the available data from our completed Phase 3 PERSIST-1 and PERSIST-2 trials and the Phase 2 PAC203 dose-ranging trial. In May 2021, the FDA accepted our NDA and granted pacritinib Priority Review, with the Prescription Drug User Fee Act target action date set for November 30, 2021. As agreed with the FDA, the PACIFICA Phase 3 trial will be completed as a post-marketing requirement.

PACIFICA Phase 3 Trial

In January 2020, we received the FDA's preliminary comments from a Type A meeting request and reached an agreement on the final design changes to our PACIFICA pivotal Phase 3 clinical trial, including changes to the statistical analysis plan that would allow for a potential accelerated approval pathway for pacritinib. We have amended our PACIFICA Phase 3 trial protocol, to allow for the primary analysis of Spleen Volume Reduction, or SVR, rate on the first 168 patients, with an end-of-study analysis of Total Symptom Score, or TSS, and Overall Survival, or OS, following the full enrollment of
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348 patients. Enrollment in this trial has recently improved due to the abatement of the COVID-19 pandemic, and we now expect to report top-line SVR data from the first 168 patients in the second half of 2022.

PRE-VENT Phase 3 Trial

In April 2020, in response to the public health crisis due to the global COVID-19 pandemic, we initiated PRE-VENT, a Phase 3 trial evaluating pacritinib in hospitalized patients with severe COVID-19. PRE-VENT, a randomized, double-blind, placebo-controlled multicenter study will compare pacritinib plus Standard of Care, or SOC, versus placebo plus SOC in hospitalized patients with severe COVID-19, including those with a current or prior diagnosis of cancer. The primary endpoint of the trial will assess the proportion of patients who progress to invasive mechanical ventilation and/or extracorporeal membrane oxygenation or die by Day 28. We commenced enrollment of PRE-VENT in the second quarter of 2020 in the United States and reported topline data from final analysis from the PRE-VENT trial in early October 2021. As a statistically significant improvement in the primary endpoint of progression to invasive mechanical ventilation and/or extracorporeal membrane oxygenation or death by Day 28 was not demonstrated, we have decided not to pursue further development of pacritinib for the treatment of severe COVID-19.

aGvHD Phase 1 Trial

In March 2021, results were published from an Investigator Sponsored Phase 1 study conducted by Joseph Pidala, MD, PhD (Moffitt Cancer Center), and Brian C. Betts, MD (Masonic Cancer Center at the University of Minnesota), evaluating pacritinib, an investigational oral kinase inhibitor with specificity for JAK2, for the prevention of acute graft-versus-host disease (aGvHD). The results demonstrated that pacritinib, combined with sirolimus and low-dose tacrolimus (PAC/SIR/TAC), has a promising safety profile and exhibits preliminary therapeutic activity in preventing aGvHD after allogeneic hematopoietic cell transplantation from HLA matched related and unrelated donors. The Phase 2 portion of the trial, designed to evaluate the therapeutic effect of pacritinib in combination with sirolimus and low-dose tacrolimus for aGvHD prevention, is ongoing.


We have historically funded our operations through the sale of equity securities, debt financing and funding received from our licensees and collaborators. We do not expect to achieve or sustain profitability for the foreseeable future. We had a net loss of $61.1 million for the nine months ended September 30, 2021 and an accumulated deficit of $2.4 billion as of September 30, 2021, primarily from expenses incurred in connection with our research programs and from selling, general and administrative costs associated with our operations. We believe that our cash and cash equivalents will be sufficient to fund our projected operations into the second quarter of 2022. This raises substantial doubt about our ability to continue as a going concern. See Note 1 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information on our assessment.

We have incurred significant operating losses to date and expect to continue to incur significant expenses and operating losses for at least the next 12 to 24 months. We anticipate that our expenses will increase as we:

continue our commercialization efforts for pacritinib;

continue our research and clinical development of pacritinib;

seek regulatory and marketing approvals for pacritinib if we successfully complete the remainder of its anticipated clinical development paths; and

maintain, protect and expand our intellectual property portfolio.

Factors Affecting Performance

Research and Development

We expect to commit significant time and resources to research and development activities relating to our current and any future product candidates. Our sole product candidate currently in active development, pacritinib, is currently in clinical development for the treatment of myelofibrosis patients with severe thrombocytopenia. In addition, a confirmatory study, PACIFICA, is ongoing and we expect to continue to devote resources to the completion of this study.

Selling, General and Administrative

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Selling, general and administrative expenses consist primarily of personnel costs, expenses for outside consulting and professional services, allocated facilities costs and costs required to prepare for the potential commercialization of our product. We anticipate that selling, general and administrative expenses will increase as we expand our activities in support of potential product launch.

Additionally, we continue to evaluate and manage the impact of the global COVID-19 pandemic on our operations and the conduct of our clinical trials, including considerations of the vulnerable nature of the patient population participating in our trials, reduced or halted activities at our clinical trial sites, an increase in fatalities or other adverse events due to medical problems related to the COVID-19 pandemic.

Financial Summary

Loss from operations was $23.4 million and $11.0 million for the three months ended September 30, 2021 and 2020, respectively, and $60.0 million and $33.0 million for the nine months ended September 30, 2021 and 2020, respectively. Results of operations may vary substantially from year to year and from quarter to quarter and, as a result, you should not rely on them as being indicative of our future performance.

As of September 30, 2021, our cash and cash equivalents were $95.3 million.

RESULTS OF OPERATIONS

Three and Nine Months Ended September 30, 2021 and 2020

Operating Costs and Expenses

Research and development expenses. Our research and development expenses for compounds under development and preclinical development were as follows (in thousands):

 Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
Pacritinib$7,914 $5,664 $23,337 $12,255 
Unallocated operating expenses1,803 1,330 5,117 4,202 
Total research and development expenses$9,717 $6,994 $28,454 $16,457 
 
Costs for our compounds include external direct expenses such as principal investigator fees, charges from contract research organizations, or CROs, and contract manufacturing fees incurred for preclinical, clinical, manufacturing and regulatory activities associated with preparing the compounds for submissions of NDAs or similar regulatory filings to the FDA, the EMA or other regulatory agencies outside the United States and Europe, as well as upfront license fees for acquired technology. Operating expenses include our personnel costs and an allocation of occupancy, depreciation and amortization expenses associated with developing our compounds. We are not able to capture the total cost of each compound because we do not allocate operating expenses to all of our compounds. Cumulative to date external direct costs incurred by us as of September 30, 2021 were $206.8 million for pacritinib (excluding costs for pacritinib prior to our acquisition of certain assets from S*BIO in May 2012 and $29.1 million of in-process research and development expenses associated with the acquisition of certain assets from S*BIO).

Research and development expenses were $9.7 million and $28.5 million for the three and nine months ended September 30, 2021, respectively, compared to $7.0 million and $16.5 million for the same periods in 2020. The increase between the three-month periods ended September 30, 2021 and 2020 was primarily attributable to a $3.6 million increase in regulatory and other costs which included activities related to the NDA submission and continued development of pacritinib and a $0.4 million increase in additional staffing, offset by a $0.9 million decrease in the PRE-VENT Phase 3 trial and a $0.4 million decrease in costs related to the PACIFICA Phase 3 trial. The increase between the nine-month periods ended September 30, 2021 and 2020 was primarily attributable to a $10.7 million increase in professional services which included regulatory and other costs related to the NDA submission for pacritinib, a $0.9 million increase in costs related to the PACIFICA Phase 3 trial and a $0.7 million increase in additional staffing, offset by a $0.3 million decrease in costs related to the PRE-VENT Phase 3 trial.

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Selling, general and administrative expenses. Selling, general and administrative expenses were $13.7 million and $31.5 million for the three and nine months ended September 30, 2021 compared to $4.1 million and $12.3 million for the same periods in 2020. Substantially all of the increase between the three-month and nine-month periods ended September 30, 2021 and 2020 was attributable to activities associated with preparation for the potential commercialization of pacritinib, which included, among other things, additional staffing, professional services, legal and consulting, and infrastructure.

Other operating expenses. Other operating expense of $4.2 million for the nine months ended September 30, 2020 was related to a full provision for the uncollectability of our Italian VAT receivables and deposit. There was no such expense for the three and nine months ended September 30, 2021 or for the three months ended September 30, 2020.

Non-Operating Income and Expenses

Interest income. Interest income was $9,000 and $28,000 for the three and nine months ended September 30, 2021, respectively, and $25,000 and $0.2 million for the three and nine months ended September 30, 2020, respectively. Interest income was related to cash equivalent securities and short-term investments. The change was primarily related to decreases in cash equivalent securities and interest rates between periods.

Interest expense. Interest expense was $0.5 million and $0.6 million for the three and nine months ended September 30, 2021, respectively, and $0.1 million and $0.4 million for the three and nine months ended September 30, 2020, respectively. Interest expense was related to our secured term loans. The change between periods was primarily related to an increase in average loan balances outstanding and an increase in interest rate due to the August 2021 $50.0 million loan under the Credit Agreement with DRI.

Amortization of debt discount and issuance costs. Amortization of debt discount and issuance costs of $0.1 million and $0.4 million for each of the three and nine months ended September 30, 2021 and 2020, respectively, was related to our secured term loans.

Loss on dissolution of majority-owned subsidiary. A loss of $3.8 million for the nine months ended September 30,
2020 was related to a loss recognized upon dissolution of our majority-owned subsidiary, Aequus Biopharma, Inc in June 2020. There was no such expense for the three and nine months ended September 30, 2021 or for the three months ended September 30, 2020.

Other non-operating expense. Other non-operating expense for the three and nine months ended September 30, 2021 relates to a loss recognized on extinguishment of Silicon Valley Bank debt upon repayment of the then-outstanding loan principal in full. See Part I, Item 1, “Notes to Condensed Consolidated Financial Statements, Note 4. Debt Financing Arrangements” for additional information.


LIQUIDITY AND CAPITAL RESOURCES

Sources of Liquidity

We have funded our operations from proceeds from the sales and the issuance of equity securities, the incurrence of debt and payments pursuant to license and collaboration agreements. As of September 30, 2021, we had $95.3 million in cash and cash equivalents.

Public Offering of Common Stock and Series X1 Preferred Stock. In April 2021, we issued 16.4 million shares of our common stock at a $2.50 per share price and 600 shares of our Series X1 Preferred Stock at a $25,000 per share price, collecting net proceeds of approximately $53.6 million upon completion of the public offering.

Rights Offering. In March 2020, we issued 15.7 million shares of our common stock at a $1.00 per share price and 4,429 shares of our Series X Preferred Stock at a $10,000 per share price, collecting net proceeds of $59.1 million.

At-The-Market Equity Offering. In November 2019, we entered into an Open Sale Agreement with Jefferies LLC to sell shares of our common stock, having aggregate sales proceeds of up to $15.0 million, from time to time, through an “at the
market” equity offering program under which Jefferies acted as sales agent. In November and December 2020, we sold 2.1 million shares of our common stock for net proceeds of approximately $7.2 million after compensation to Jefferies. In January 2021 we entered into a new Open Sale Agreement with Jefferies LLC to sell shares of our common stock having aggregate
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sales proceeds of up to $50.0 million. We sold 0.9 million shares of our common stock for net proceeds of approximately $2.7 million during the first quarter of 2021.

Loan Agreement. In August 2021, we entered into a Credit Agreement with Drug Royalty III LP 2, or DRI, as lender and administrative agent, which provided for a loan in the principal amount of $50 million funded by DRI at closing. As of September 30, 2021, we had an outstanding principal balance under the Credit Agreement of $50.0 million. We are required to pay quarterly interest-only payments until August 25, 2026, or the maturity date, with the unpaid principal amount of the outstanding loan due and payable on the maturity date. The loan bears interest at a rate equal to 8.25% per annum, plus the greater of (i) 1.75% and (ii) the three-month LIBOR rate and requires a back-end fee of $1.0 million. These borrowings are secured by a first priority security interest on substantially all of our assets, subject to certain exceptions. In addition, the Credit Agreement requires us to comply with restrictive covenants, including those that limit our operating flexibility and ability to borrow additional funds. A failure to make a required payment or an uncured covenant breach could lead to an event of default, and in such case, all amounts then outstanding may become due and payable immediately.

In connection with the Credit Agreement above, we and DRI entered into a Purchase and Sale Agreement, or the Royalty Financing Agreement, pursuant to which we sold to DRI the right to receive certain royalty payments from us for a purchase price of up to $85 million in cash. Under the Royalty Financing Agreement, DRI is entitled to receive tiered, sales-based royalties on net product sales of pacritinib in the United States. DRI will fund the upfront purchase price of $60 million upon approval of pacritinib by the FDA in the United States and will be required to provide up to $25 million of additional funding to us if certain minimum pacritinib sales thresholds are met in 2023, or sooner. If pacritinib is not approved by the FDA by May 2, 2022, then the Royalty Purchase Agreement shall automatically terminate.

Historical Cash Flows

Net cash used in operating activities. Net cash used in operating activities increased to $54.9 million during the nine months ended September 30, 2021 compared to $31.4 million for the same period in 2020. The increase was primarily due to increases in payments for research and development and selling, general and administrative expenses associated with continued development and preparation for the potential commercialization of pacritinib.

Net cash provided by (used in) investing activities. Net cash provided by investing activities was $12.0 million during the nine months ended September 30, 2021 and net cash used in investing activities was $9.6 million during the nine months ended September 30, 2020. The change was due to the amounts of short-term investments purchased and matured between periods.

Net cash provided by financing activities. Net cash provided by financing activities was $97.8 million and $55.1 million during the nine months ended September 30, 2021 and 2020, respectively. The change was primarily attributable to the net proceeds from the completion of our public offering of common stock and Series X1 Preferred Stock in April 2021, the loan proceeds from Drug Royalty III LP 2 in August 2021, and the net proceeds from the completion of our rights offering in March 2020.

Capital Resources

We have prepared our condensed consolidated financial statements assuming that we will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. However, we believe that, as of the date of the filing of this Quarterly Report on Form 10-Q, our present financial resources will be sufficient to fund our operations into the second quarter of 2022. This raises substantial doubt about our ability to continue as a going concern and we will need to raise substantial additional capital in the near term in order to fund our operations through and beyond the second quarter of 2022 and to continue as a going concern thereafter. See Note 1 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information on our assessment. Further, we have incurred net losses since inception and expect to generate losses for the foreseeable future. We have historically funded our operations through equity financings, borrowings and funds obtained under product collaborations, any or all of which may not be available to us in the future. As of September 30, 2021, our available cash and cash equivalents totaled $95.3 million, and we had an outstanding principal balance of $50.0 million under our Credit Agreement with DRI.

Financial resource forecasts are subject to change as a result of a variety of risks and uncertainties. Changes in our commercialization efforts, manufacturing, developments in and expenses associated with our clinical trials and the other factors identified under “Capital Requirements” below may consume capital resources earlier than planned. Due to these and other factors, the foregoing forecast for the period for which we will have sufficient resources to fund our operations may be inaccurate.
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Capital Requirements

We will require additional capital in order to pursue our strategic objectives. We expect to satisfy our capital needs through existing capital balances and some combination of public or private equity financings, partnerships, collaborations, joint ventures, disposition of assets, debt financings or restructurings, bank borrowings or other sources of financing. However, we have a limited number of authorized shares of common stock available for issuance and additional funding may not be available on favorable terms or at all. If additional funds are raised by issuing equity securities, substantial dilution to existing stockholders may result. If we fail to obtain additional capital when needed, our ability to operate as a going concern will be harmed, and we may be required to delay, scale back or eliminate some or all of our research and development programs and commercialization efforts and/or reduce our selling, general and administrative expenses, be unable to attract and retain highly-qualified personnel, be unable to obtain and maintain contracts necessary to continue our operations and at affordable rates with competitive terms, refrain from making our contractually required payments when due (including debt payments) and/or be forced to cease operations, liquidate our assets and possibly seek bankruptcy protection.

Our future capital requirements will depend on many factors, including: the cost of manufacturing clinical supplies of our product candidates or of establishing commercial supplies of any products that we may develop in the future; developments in and expenses associated with our research and development activities; our clinical development plans and any changes that we may initiate or that may be requested by the FDA or other regulators as we seek product approval; acquisitions or collaborations with respect to compounds or other assets; competitive market developments; disruptions or other delays to our business and clinical trials resulting from the ongoing worldwide COVID-19 pandemic; and other unplanned business developments.

LICENSE AGREEMENTS AND MILESTONE ACTIVITIES

For information regarding our license agreements and milestone activities, please see Part I, Item 1, “Business – License Agreements” of our Annual Report on Form 10-K for the year ended December 31, 2020.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures in the preparation of our condensed consolidated financial statements and accompanying notes. Our critical accounting policies are those that significantly impact our financial condition and results of operations and require the most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Because of this uncertainty, actual results may vary from these estimates. For a discussion of our critical accounting estimates, please see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2020. There have been no material changes to our critical accounting policies and estimates discussed therein.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

As a smaller reporting company, we are not required to provide the information requested by this item pursuant to Item 305(e) of Regulation S-K.

Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
Our management, under the supervision and with the participation of our President and Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this Quarterly
24


Report on Form 10-Q. Based upon that evaluation, our President and Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There have been no changes to our internal control over financial reporting that occurred during the third fiscal quarter ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION

Item 1. Legal Proceedings

See Part I, Item 1, “Notes to Condensed Consolidated Financial Statements, Note 6. Contingencies” of this report for information regarding material pending legal proceedings.

Item 1A. Risk Factors

Our business is subject to various risks, including those described in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2020. There have been no material changes from the risk factors disclosed in Item 1A of our Annual Report on Form 10-K.

This report contains forward-looking statements that involve risks and uncertainties. The occurrence of any of the risks described in our Annual Report on Form 10-K could materially adversely affect our business, financial condition, liquidity, operating results or prospects and the trading price of our securities. Additional risks and uncertainties that we do not presently know or that we currently deem immaterial may also harm our business, financial condition, operating results and prospects and the trading price of our securities.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information
None.

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Item 6. Exhibits
Incorporated by Reference
Exhibit NumberExhibit DescriptionFormFile No.Exhibit NumberFiling Date
10.1†Filed herewith.
10.2†Filed herewith.
31.1Filed herewith.
31.2Filed herewith.
32Furnished herewith.
101The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Loss, (iv) Condensed Consolidated Statements of Changes in Stockholders' Equity, (v) Condensed Consolidated Statements of Cash Flows and (vi) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text and including detailed tags.
104Cover page interactive data file (formatted in Inline XBRL and contained in Exhibit 101).
† Portions of this Exhibit have been redacted in compliance with Regulation S-K Item 601(b)(10)(iv).


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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized:
 
  CTI BIOPHARMA CORP.
  (Registrant)
     
Dated: November 12, 2021 By: /s/ Adam R. Craig
    Adam R. Craig
    President, Chief Executive Officer and Interim Chief Medical Officer
     
Dated: November 12, 2021 By: /s/ David H. Kirske
    David H. Kirske
    Chief Financial Officer
    

28
Document
Certain information has been omitted from this exhibit in places marked “[***]” because it is both not material and would likely cause competitive harm to the registrant if publicly disclosed or because it contains personally identifiable information omitted from this exhibit pursuant to Item 601(a)(6) under Regulation S-K.









Purchase and Sale Agreement
By and Between
CTI BioPharma Corp.
and
Drug Royalty III LP 2
Dated as of August 25, 2021







TABLE OF CONTENTS

ARTICLE 1 DEFINITIONS
Section 1.1    Definitions
Section 1.2    Certain Interpretations
ARTICLE 2 PURCHASE, SALE AND ASSIGNMENT OF THE REVENUE PARTICIPATION RIGHT
Section 2.1    Purchase, Sale and Assignment
Section 2.2    Purchase Price; Milestone Payments
Section 2.3    No Assumed Obligations, Etc
ARTICLE 3 CLOSING
Section 3.1    Closing
Section 3.2    Payment of Closing Price
Section 3.3    Bill of Sale
ARTICLE 4 REPRESENTATIONS AND WARRANTIES
Section 4.1    Seller’s Representations and Warranties
Section 4.2    Buyer’s Representations and Warranties
Section 4.3    No Implied Representations and Warranties
ARTICLE 5 CONDITIONS TO CLOSING
Section 5.1    Conditions to the Buyer’s Obligations
Section 5.2    Conditions to the Seller’s Obligations
ARTICLE 6 COVENANTS
Section 6.1    Reporting
Section 6.2    Royalty Payments; Revenue Participation and Royalty Payment Details; [***]
Section 6.3    Disclosures
Section 6.4    Inspections and Audits of the Seller
Section 6.5    Intellectual Property Matters
Section 6.6    In-Licenses
Section 6.7    Permitted Licenses; Sales
Section 6.8    Restricted Indebtedness
Section 6.9    Diligence
Section 6.10    Efforts to Consummate Transactions
Section 6.11    Continuing Efforts; Further Assurances
Section 6.12    Non-Impairment; Back-Up Security Interest
Section 6.13    Certain Tax Matters




Section 6.14    Use of Proceeds
Section 6.15    Milestone Payments to S*BIO
ARTICLE 7 INDEMNIFICATION
Section 7.1    General Indemnity
Section 7.2    Notice of Claims
Section 7.3    Claim Procedures
Section 7.4    Limitations on Liability
Section 7.5    Exclusive Remedy
Section 7.6    Tax Treatment of Indemnification Payments
Section 7.7    Survival
ARTICLE 8 CONFIDENTIALITY
Section 8.1    Confidentiality
Section 8.2    Authorized Disclosure
ARTICLE 9 TERMINATION
Section 9.1    Mutual Termination
Section 9.2    Termination upon Failure to Achieve U.S. Marketing Approval
Section 9.3    Automatic Termination
Section 9.4    Survival
ARTICLE 10 MISCELLANEOUS
Section 10.1    Headings
Section 10.2    Notices
Section 10.3    Assignment
Section 10.4    Amendment and Waiver
Section 10.5    Entire Agreement
Section 10.6    No Third Party Beneficiaries
Section 10.7    Governing Law
Section 10.8    Jurisdiction; Venue
Section 10.9    Severability
Section 10.10    Specific Performance
Section 10.11    Counterparts
Section 10.12    Relationship of the Parties
Section 10.13    Intercreditor Agreement; Other Intercreditor Agreement






Index of Exhibits
Exhibit A:    Description of Pacritinib
Exhibit B:    Form of Intercreditor Agreement
Exhibit C:    Bill of Sale
Exhibit D:    Forms of Seller Opinions
Exhibit E:    Form of Royalty Report





PURCHASE AND SALE AGREEMENT
This PURCHASE AND SALE AGREEMENT, dated as of August 25, 2021 (this “Agreement”), is made and entered into by and between Drug Royalty III LP 2, a Delaware limited partnership (the “Buyer”), and CTI BioPharma Corp., a Delaware corporation (the “Seller”).
RECITALS:
WHEREAS, the Seller is in the business of, among other things, developing and commercializing the Product; and
WHEREAS, the Buyer desires to purchase the Revenue Participation Right from the Seller in exchange for payment of the Purchase Price, and the Seller desires to sell the Revenue Participation Right to the Buyer in exchange for the Buyer’s payment of the Purchase Price, in each case on the terms and conditions set forth in this Agreement.
NOW THEREFORE, in consideration of the representations, warranties, covenants and agreements set forth herein and for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Seller and the Buyer hereby agree as follows:
ARTICLE 1

DEFINITIONS
Section 1.1    Definitions. The following terms, as used herein, shall have the following meanings:
Affiliate” means, with respect to any particular Person, any other Person directly or indirectly controlling, controlled by or under common control with such particular Person. For purposes of the foregoing sentence, the term “control” means direct or indirect ownership of (a) fifty percent (50%) or more, including ownership by trusts with substantially the same beneficial interests, of the voting and equity rights of such Person, firm, trust, corporation, partnership or other entity or combination thereof, or (b) the power to direct the management of such person, firm, trust, corporation, partnership or other entity or combination thereof, by contract or otherwise.
Agreement” is defined in the preamble.
Approved Indication” means the treatment of adult patients with intermediate or high risk primary or secondary (post-polycythemia vera or post-essential thrombocytopenia) myelofibrosis in patients with a platelet count below 50,000/μL or such other indication that is substantially identical thereto in all material respects.




Back-Up Security Interest” is defined in Section 2.1(b).
Bankruptcy Event” means the occurrence of any of the following in respect of a Person: (a) such Person shall generally not, shall be unable to, or an admission in writing by such Person of its inability to, pay its debts as they come due or a general assignment by such Person for the benefit of creditors; (b) the filing of any petition or answer by such Person seeking to adjudicate itself as bankrupt or insolvent, or seeking for itself any liquidation, winding-up, reorganization, arrangement, adjustment, protection, relief or composition of such Person or its debts under any applicable law relating to bankruptcy, insolvency, receivership, winding-up, liquidation, reorganization, examination, relief of debtors or other similar applicable law now or hereafter in effect, or seeking, consenting to or acquiescing in the entry of an order for relief in any case under any such applicable law, or the appointment of or taking possession by a receiver, trustee, custodian, liquidator, examiner, assignee, sequestrator or other similar official for such Person or for any substantial part of its property; (c) corporate or other entity action taken by such Person to authorize any of the actions set forth in clause (a) or clause (b) above; or (d) without the consent or acquiescence of such Person, the commencement of an action seeking entry of an order for relief or approval of a petition for relief or reorganization or any other petition seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or other similar relief under any present or future bankruptcy, insolvency or similar applicable law, or the filing of any such petition against such Person, or, without the consent or acquiescence of such Person, the commencement of an action seeking entry of an order appointing a trustee, custodian, receiver or liquidator of such Person or of all or any substantial part of the property of such Person, in each case where such petition or order shall remain unstayed or shall not have been stayed or dismissed within [***] days from entry thereof.
“Bankruptcy Laws” means, collectively, bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, fraudulent transfer or other similar laws affecting the enforcement of creditors’ rights generally.
“Business Day” means any day other than (a) a Saturday or Sunday or (b) a day on which banking institutions located in New York are permitted or required by applicable law or regulation to remain closed.
“[***]” is defined in [Section ***].
“[***]” is defined in [Section ***].
“[***]” is defined in [Section ***].
“[***]” is defined in [Section ***].
Buyer” is defined in the preamble.
Buyer Indemnified Parties” is defined in Section 7.1(a).




Calendar Quarter” means, for the first calendar quarter, the period beginning on the Closing Date and ending on the last day of the calendar quarter in which the Closing Date falls, and thereafter each successive period of three (3) consecutive calendar months ending on March 31, June 30, September 30 or December 31.
Capital Lease” means, as applied to any Person, any lease of any property by that Person as lessee which, in accordance with GAAP, is required to be accounted for as a capital lease on the balance sheet of that Person.
Change of Control” means the occurrence of any one or more of the following: (a) the acquisition, whether directly, indirectly, beneficially or of record, whether by merger, consolidation, sale or other transfer of securities in a single transaction or series of related transactions, by any Person of any voting securities of the Seller, or if the percentage ownership of any Person in the voting securities of the Seller is increased through stock redemption, cancellation, or other recapitalization, and immediately after such acquisition or increase such Person is, directly or indirectly, the beneficial owner of voting securities representing 50% or more of the total voting power of all of the then outstanding voting securities of the Seller; (b) a merger, consolidation, recapitalization, or reorganization of the Seller is consummated that would result in shareholders or equity holders of the Seller immediately prior to such transaction that did not own more than 50% of the outstanding voting securities of the Seller immediately prior to such transaction, owning more than 50% of the outstanding voting securities of the surviving entity (or its parent entity) immediately following such transaction; or (c) the sale, lease, transfer, license or other disposition, in a single transaction or series of related transactions, by the Seller or any Subsidiary of the Seller of all or substantially all the assets of the Seller and its Subsidiaries taken as a whole, or the sale or disposition (whether by merger, consolidation or otherwise) of one or more Subsidiaries of the Seller if substantially all of the assets of the Seller and its Subsidiaries taken as a whole are held by such Subsidiary or Subsidiaries, except where such sale, lease, transfer, license or other disposition is to a wholly owned Subsidiary of the Seller.
Clinical and Commercial [***] Report” is defined in Section 6.1(a).
Clinical and Commercial [***] Report” is defined in Section 6.1(a).
Clinical Trial” means a clinical trial or study intended to support or maintain Marketing Approval or Commercialization of a Product, including post-approval clinical trials or studies.
Clinical Updates” means (a) a summary of any material updates with respect to the Clinical Trials, including the number of patients currently enrolled in each such Clinical Trial, the number of sites conducting each such Clinical Trial, the material progress of each such Clinical Trial, any material modifications to each such Clinical Trial, any adverse events in the Clinical Trials, (b) written plans to start new Clinical Trials, and (c) investigator brochures for a Product.




Closing” means the closing of the sale, transfer, assignment and conveyance of the Revenue Participation Right hereunder.
Closing Date” means the date on which the Closing occurs pursuant to Section 3.1.
Closing Price” is defined in Section 2.2(a).
CMC” means chemistry, manufacturing and controls with respect to a Product.
Combination Product” means:
(a)    a single pharmaceutical formulation (whether co-formulated or administered together via the same administration route) containing as its active ingredients both a Product and one or more other therapeutically or prophylactically active pharmaceutical or biologic ingredients (each an “Other Component”), or
(b)    a combination therapy comprised of a Product and one or more Other Component(s), whether priced and sold in a single package containing such multiple products, packaged separately but sold together for a single price, or sold under separate price points but labeled for use together, in each case, including all dosage forms, formulations, presentations, and package configurations. Drug delivery vehicles, adjuvants and excipients will not be deemed to be “active ingredients”, except in the case where such delivery vehicle, adjuvant or excipient is recognized by the FDA as an active ingredient in accordance with 21 C.F.R. 210.3(b)(7). All references to Products in this Agreement shall be deemed to include Combination Products.
Commercial Updates” means a summary of material updates with respect to the Seller’s and its Affiliates’ and any Licensee’s sales and marketing activities and, if material, commercial manufacturing matters with respect to a Product.
Commercialization” means any and all activities directed to the distribution, marketing, detailing, promotion, selling and securing of reimbursement of a Product (including the using, importing, selling and offering for sale of such Product), and shall include post-Marketing Approval studies to the extent required by a Regulatory Authority, post-launch marketing, promoting, detailing, distributing, selling such Product, importing, exporting or transporting such Product for sale, and regulatory compliance with respect to the foregoing. When used as a verb, “Commercialize” shall mean to engage in Commercialization. Except with respect to post-Marketing Approval studies required by a Regulatory Authority, Commercialization shall not include any activities directed to the research or development (including pre-clinical and clinical development) or manufacture of a Product.
Commercially Reasonable Efforts” means the level of efforts and resources (measured as of the time that such efforts and resources are required to be used under this Agreement) that are commonly used by a commercial-stage public biotechnology company of similar size and




resources to Seller (provided that such size and resources shall not decrease below the size and resources of the Seller as of the Closing Date), to develop, manufacture or commercialize, as the case may be, a comparable product for a comparable clinical indication (with respect to market size and commercial opportunity) at a similar stage in its development or product life and of a similar market and potential to a Product, but without regard to the Seller’s financial obligations under this Agreement.
Confidential Information” is defined in Section 8.1.
Controlling Agreement” is defined in Section 10.13.
Convertible Bond Indebtedness” means Indebtedness having a feature which entitles the holder thereof to convert or exchange all or a portion of such Indebtedness into shares of common capital stock of the Seller; provided, that, (a) the principal amount (or accreted value, if applicable) of such Convertible Bond Indebtedness does not exceed [***] Dollars ($[***]), (b) such Convertible Bond Indebtedness shall be unsecured, (c) no Subsidiary shall Guarantee such Convertible Bond Indebtedness, (d) such Convertible Bond Indebtedness shall not mature, and no scheduled or mandatory principal payments, repayments, prepayments, cash settlements, repurchases, redemptions or sinking fund or like payments (but excluding, for the avoidance of doubt, regularly scheduled cash interest payments and conversion of such Convertible Bond Indebtedness into shares of common capital stock of the Seller in accordance with the terms thereof) of such Convertible Bond Indebtedness shall be required at any time on or prior to the date that is [***] after the Maturity Date as defined in the Credit Agreement, other than upon a “Change of Control”, “fundamental change”, “make-whole fundamental change” or similar event, (e) such Convertible Bond Indebtedness shall (i) not include (A) any financial maintenance covenants or (B) other covenants and defaults that are, taken as a whole, more restrictive on the Seller and its Subsidiaries than the covenants and defaults set forth in the Loan Documents and (ii) have a cash interest rate of less than the greater of (x) [***] percent ([***]%) per annum and (y) such cash interest rate as the Buyer, in its sole discretion, shall approve in writing after the Closing Date, upon the request of the Seller in light of changes to market interest rates for similar convertible notes, (f) such Convertible Bond Indebtedness shall include conversion, redemption and fundamental change provisions that are customary for public market convertible indebtedness (pursuant to a public offering or an offering under Rule 144A or Regulation S of the Securities Act), (g) such Convertible Bond Indebtedness shall be subordinated in right of payment to the Royalty Payments pursuant to the terms of a subordination, intercreditor, or other similar agreement (or terms of subordination incorporated into the indenture under which such Convertible Bond Indebtedness is issued), in each case, in form and substance, and on terms, approved by the Buyer in writing in its sole discretion, (h) no Default or Event of Default shall have occurred and be continuing at the time of incurrence of such Convertible Bond Indebtedness or could result therefrom and (i) the Seller shall have delivered to the Buyer a certificate of a responsible financial officer of the Seller certifying as to the foregoing.




Credit Agreement” means that certain Credit Agreement dated as of the date hereof among the Seller, each Person identified as a “Guarantor” on the signature pages thereto and each other Person that joins as a Guarantor (together with their successors and permitted assigns) (each, a “Guarantor”), each of the Persons identified as a “Lender” on the signature pages thereto and their successors and assigns, and Lender, as administrative agent, and its successors and assigns, as amended, restated, amended and restated, supplemented, waived, replaced (whether or not upon termination, and whether with the original lenders or otherwise), increased, restructured, repaid, refunded, refinanced or otherwise modified from time to time, including any indentures, credit facilities, term loan facility or other agreement extending the maturity thereof, refinancing, replacing or otherwise restructuring all or a portion of the Indebtedness under such indentures, credit facilities, term loan facility or other agreement or any successor or replacement indentures, credit facilities, term loan facility or other agreement and whether with the original obligors, agent, lenders, institutional investors or otherwise, and whether provided under the original Credit Agreement or one or more other credit or other agreements or indentures, and any agreement (and related document) governing Indebtedness incurred to refinance, in whole or in part, the borrowings, other extensions of credit and commitments then outstanding or permitted to be outstanding under such debt facilities or successor debt facilities, whether by the same or any other obligor, issuer, agent, lender or group of lenders (or institutional investors).
“[***]”
Default” means any event or condition that constitutes an Event of Default under the Loan Documents or that, with the giving of any notice, the passage of time, or both, would be an Event of Default under the Loan Documents.
Disclosing Party” is defined in Section 8.1.
Disclosure Schedule” means the Disclosure Schedule, dated as of the date hereof, delivered to the Buyer by the Seller concurrently with the execution of this Agreement.
Distributor” means a Third Party that (a) purchases or has the option to purchase any Product in finished form from or at the direction of the Seller or any of its Affiliates, (b) has the right, option or obligation to distribute, market and sell such Product (with or without packaging rights) in one or more regions, and (c) is not a Licensee. The term “packaging rights” in this definition will mean the right for the Distributor to package or have packaged Product supplied in unpackaged bulk form into individual ready-for-sale packs.
EMA” means the European Medicines Agency, or any successor agency thereto.
ERISA” means the Employee Retirement Income Security Act of 1974.